March 20, 2006

Four times every year, fund managers must report their holdings in their quarterly filings. And this quarter is the same. With Google underperforming the market for the first time this quarter, and also exhibiting negative returns, one blogger speculated that fund managers quietly unloading before the end of the quarter when grades are due. Managers are taking the lifeboat on this name. Google is the largest position in several of the largest funds in this country. One of the largest funds (Fidelity, American Century) apparently is doing the dumping according to this post. I have included the post below because there is no direct link to the article.20-March-2006The Google Factor, from Ross MillerWhile some members of the list are resorting to numerology to divine the future of Google, it is worth noting that key players in the mutual fund industry (including Fidelity and American Century) loaded up on Google several months ago. My own quick and dirty statistical analysis of one of the largest of these funds indicates that their Google holdings have been so great that Google is more significant in explaining the fund's pattern of returns that the entire NASDAQ 100 is. This is even more impressive when one considers that Google itself is a fair-sized chunk of the NASDAQ 100. The Google factor continued through last week to exert a major pull on certain funds -- enough to turn what would otherwise be an up day for them into a down day.1Q2006 is the first quarter since Google arrived on the scene where Google is down big-time from where it started the quarter, and still with two weeks left to go. It has only had one down quarter before, 1Q2005, and that decline was modest. Mutual fund managers may be loathe to exhibit large chunks of Google in their quarterly reports. While the efficient market hypothesis indicates that window dressing is already "baked into the pie," there is also a lot of academic evidence that end-of-quarter anomalies are real. While I am certain that Google is keeping announcements of nifty new things in its silo to spring on the market over the next two weeks, the question is whether those goodies will be enough to offset the tide of fund managers taking to the lifeboats.